United Continental, set to receive its first Boeing 787 Dreamliner this year, will finance part of the purchase with USD$892 million in bonds at record-low interest rates, which some experts say reflects investor confidence in the new plane and the carrier.
United will use the money to pay for 18 new planes -- four Dreamliners and 14 narrow-body 737s. The company also refinanced three 737s that have already entered service.
United disclosed the financing terms in a regulatory filing on Thursday.
The deal marks the first time an airline has used the capital markets to fund the purchase of 787s. Foreign airlines typically borrow money from banks to pay for planes.
"People would not be lending money at these rates if they didn't think the collateral was there to support it," said Thomas Cahill, Managing Director of Capital Markets at Morgan Stanley.
Credit Suisse and Morgan Stanley led the deal.
The planes technically will be owned by Continental Airlines and operated under the United name.
The blended interest rate on the debt amounted to 4.38 percent, beating the previous low of 4.88 percent for a similarly structured aircraft deal by Continental in 2010, Cahill said.
The low rate "is truly kind of shocking," he said, noting the troubled history of US airlines and recent tight credit markets.
United Airlines restructured in bankruptcy years before its merger with Continental.
"We don't even think about that bankruptcy from years ago at United Airlines. It's a completely different airline today," said Tom Smith, Managing Director in the Debt Capital Markets Group at Credit Suisse.
United expects to take first delivery of a 787 later this year. The aircraft is the first commercial plane with an airframe made largely of carbon composites. The use of those materials lowers the weight and aids fuel efficiency.
Boeing struggled for years to develop the aircraft and bring it to market, which it finally did in 2011, three years later than planned. Nevertheless, the 787 is a hit among customers, and airlines have placed about 870 orders.
Boeing has delivered only five Dreamliners so far, all to its launch customer, Japan's All Nippon Airways. The company now aims to boost its production rate to 10 per month by the end of 2013.
A recent manufacturing problem involving a rear fuselage flaw now threatens that target, experts say, although Boeing stands by it.
Boeing is also in talks with United on compensation for late 787 deliveries. United has 50 on order.
Richard Aboulafia, an aerospace analyst at Teal Group, said the attractive financing United received for this order bodes well for the carrier's upcoming aircraft purchases. United is in talks on an order for narrow-bodies that sources say amounts to about 180 planes.
"If you're buying a jet that's popular and you have reasonably good credit, and people like you, you can be very aggressive about your fleet replacement plans," Aboulafia said. "And in a time of expensive fuel, that's absolutely key."